Friday, June 14, 2024

How-to understand competition regulation in electricity business sector

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Energy diversification in the electricity sector has shown positive growth. In June 2020, the installed capacity of the national power plant is known to have reached 71 GW (GigaWatts). However, it is agreed that power generation has a number of challenges, which are caused by various factors. The first concerns deregulation and competition. A number of power companies may carry out corporate restructuring by forming subsidiaries and distribution subsidiaries. It can even form a transmission line company or an independent generation company (PPI). This results in competition among subsidiaries so that it propagates to more complicated system operating problems.

Governing law and regulation 

  • Law No. 30/2009 on Electricity as amended by Law No. 11/2020 on Job Creation
  • Law No. 5/1999 on Anti-Monopoly as amended by Law No. 11/2020 on Job Creation
  • Presidential Regulation (Perpres) No. 13/2018 concerning Application of the Principle of Recognizing the Beneficial Owner of Corporations in the Context of Prevention and Eradication of Money Laundering and Terrorism Financing Crimes
  • Minister of Energy and Mineral Resources Regulation (Permen ESDM) No. 48/2017 on the Supervision of Business in the Field of Energy and Mineral Resources
  • Minister of Energy and Mineral Resources Regulation (Permen ESDM) No. 5/2021, on Standards of Business Activities and Products on the Administration of Risk-Based Licensing on the Energy and Mineral Resources Sector

Anti-monopoly in Law No. 5/1999

In Law No. 5/1999, it is stated that there are three categories prohibited in anti-monopoly regulation. First, the law prohibits contracts having the elements of oligopoly, price-fixing, dividing territory, boycotting, cartel, trusts, oligopsony, vertical integration, exclusive dealing; or contracts with foreign parties whose terms and conditions may result in monopoly and unfair competition or both. Second, Law No. 5/1999 prohibits activities that lead to monopoly, monopsony, market domination, and conspiracy. The difference between contractual and activity prohibition is the scope of the prohibition. The contract prohibition only applies to arrangements between two or more business entities, while the activity prohibition can apply to one business entity. Then, the third category involves prohibiting abuse of a dominant market position. The abuse of market control provisions in Law No. 5/1999 focuses on interrelated directorate arrangements, share ownership, and mergers, acquisitions, and disbandments.

Business Competition Supervisory Commission (KPPU) authority

KPPU has the authority to prevent or correct anti-competitive or manipulative practices by: 

  • assessing contracts and activities that may lead to anti-competitive practices; 
  • provide advice and recommendations regarding anti-competitive practices;
  • investigate cases that may lead to anti-competitive practices; and 
  • the imposition of administrative sanctions on business entities that violate the Anti-monopoly Law, among others:
    • canceling agreements that lead to anti-competitive practices; 
    • order entrepreneurs to stop anti-competitive activities; 
    • cancel the merger, acquisition, or dissolution; 
    • compensation payment arrangements; and
    •  issue a fine of at least one billion rupiah.

Prohibition of merger and acquisition in certain condition

Investors who want to do electricity business in Indonesia, must establish a single purpose company, which is not allowed to operate in many business sectors. From this provision, foreign investors in the electricity sector are not allowed to conduct mergers or acquisitions. However, power companies can be acquired by companies operating in other sectors. There is no longer a requirement to obtain approval from the Investment Coordinating Board (BKPM) for changes to the share ownership composition of the target company. Any change in shareholding composition only requires updating the target company’s data in the Online Single Submission (OSS) system. If the acquiring company which owns a company operating in the electricity sector intends to acquire another company engaged in the electricity sector (that is, the parent company of the transmission network company intends to acquire a distribution network company), it must be reviewed by the KPPU which is authorized to take action to cancel mergers and acquisitions that may result in monopolistic practices and/or unfair business competition. The KPPU has the authority to investigate, review and sanction anti competitive behavior by companies. In addition to the KPPU, based on Indonesian investment regulations, acquisition transactions must always refer to the Investment List based on Perpres No. 10/2021 concerning Investment Business Fields as amended by Perpres No. 49/2021 (Investment List), which regulates share ownership foreign investors in certain sectors, including electricity.

However, there are exceptions for electricity companies that are exempt from monopoly provisions. Based on Law No. 30/2009 concerning Electricity, PT Perusahaan Listrik Negara (PLN) is a state-owned enterprise that has been prioritized for conducting electricity business in Indonesia, including the generation and supply of electricity. Thus, PLN was exempted from Law No. 5/1999.

Electricity business obligation to prevent monopolistic action

Electricity companies including Independent Power Producers (IPPs) as companies engaged in energy and mineral resources, if they wish to make certain changes such as the composition of share ownership or management of the company, in accordance with Permen ESDM No. 48/2017, must obtain approval or notification to the Ministry of Energy and Mineral Resources. In addition, it is regulated in Permen ESDM No. 48/2017 that the holder of an Electricity Supply Business License for Public Interest (IUPTLU) who sells their electricity to PLN is not allowed to change the composition of their share ownership before the Commercial Operation Date. The exception to the above is only made if the transfer of shares is made to an affiliate of the majority shareholder, whose 90 percent of the shares are directly owned by the majority shareholder. The transfer requires approval from PLN. The transfer of shares must also be notified to the Ministry of Energy and Mineral Resources through the Directorate General of Electricity (DGE) after receiving notification from the Minister of Law and Human Rights.

Furthermore, based on Permen ESDM No. 5/2021, IUPTLU holders are also required to submit periodic reports to DGE online every January if there is a change in the company holding IUPTLU consisting of administrative and technical data, which includes changes in the composition of shareholders, directors, or company management. from the commissioner. Furthermore, in Perpres No. 13/2018 it is required for companies to disclose their beneficial owners to the relevant authorities.

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